New law may allow more local govts to issue debt, paper says

Local governments may be allowed to directly issue bonds under a new budget law on its third reading, Economic Information Daily reported Tuesday, citing an unnamed source.

The State Council will set quotas for such issues, subject to approval by the National People’s Congress. Proceeds could be used to fund certain construction projects, the report said.

In 2011, China launched a pilot program to allow Shanghai, Shenzhen, Guangdong and Zhejiang to sell bonds directly to the market in a move to narrow financing shortfalls. Jiangsu and Shandong joined the program in 2013.

Under China’s current budget law, local governments are prohibited from directly issuing bonds. Since 2009, the finance ministry has been selling such securities on their behalf.

The ministry pays the principal and interest on the bonds at maturity and the local governments repay the ministry.

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